Congress should not preempt the ability of state legislatures and local officials to protect their constituents from predatory lending abuses. The measures enacted so far have not affected the prime market or restricted access to credit, while setting basic protections against some of the most common abuses that strip home equity, trap borrowers in excessive interest rates, and force families out of their homes.

Congress, state legislatures, and local officials should pass strong anti-predatory lending legislation that would protect consumers from abusive practices, which have been especially targeted at lower-income and minority communities. The legislation should follow the basic structure of S. 2438 – Senator Paul Sarbanes’ bill in the 107th Congress⁵¹ – in strengthening the protections provided in the federal Home Ownership Equity Protection Act (HOEPA), extending those protections to more borrowers in high-cost home loans, and establishing penalties for violating the law that are more in line with the damage caused to borrowers.

Federal banking regulators, in their evaluations of a bank's CRA performance, should give closer scrutiny to a bank’s involvement in predatory lending. Regulators should consider not just the number of loans the bank originates to low-and moderate-income borrowers, but also the quality of those loans. In addition, banks that make high-cost loans directly or through their subsidiaries or purchase high-cost loans with predatory terms should be penalized under CRA for those activities, not rewarded.

Congress should increase the funding level for HUD’s Housing Counseling Program well beyond the $20 million provided in FY 2002; it should be funded at least to the $40 million dollar level included in the Senate Appropriations Committee bill this year to increase the availability or housing counseling for potential predatory lending victims. To come closer to meeting the demand for such services, the annual funding level should be increased in future years to $100 million. Fannie Mae, Freddie Mac, mortgage lenders, and state and local governments should mandate and expand funding for programs that provide basic information about lending and enable people to protect themselves from predatory practices. The most effective tool for helping minority and lower-income families to become successful homeowners is high quality loan counseling and home buyer education by community based entities.

Federal and State regulators should increase their scrutiny of predatory lending practices, including examining the interest rates and other costs of loans as well as their distribution. Federal and state authorities should devote the necessary resources to investigating and prosecuting lending abuses.

The federal banking regulators must not worsen the problematic impact of credit scoring by penalizing lenders for making ‘A’ loans to any borrower with a credit score below 660. Unfortunately, the regulators are proposing higher capital requirements for lenders making such loans under a July 12 Federal Register notice regarding data collection on subprime loans made or purchased by banks and thrifts. Such a step could arbitrarily and unfairly exclude millions of consumers from the low rates and fees provided in the prime market, significantly raising the cost of homeownership for those families. In the final rule, the regulators also should follow the industry practice of classifying loans as subprime or not based on the rates and fees, not on the borrower’s characteristics, and make public the data on subprime loan volume engaged in by banks and thrifts.

The Federal Reserve must follow through on collecting information on high-cost mortgages under HMDA, which is scheduled to begin in 2004. This will provide regulators, elected officials, and the public with the clearest picture to date on the concentration of high-cost mortgages in various communities and population groups.

Main Report Table of Contents | Recommendations for Lenders

51. Rep. John LaFalce introduced nearly identical legislation, HR 1051, in the 107^th Congress.